June 2009

June 04, 2009

The Red Dirt Blog presents a new companion feature, "Defending Our President," where Gov. Walters responds to letters he receives regarding the policies of the current administration. A link to the new site is on the left or click here.

David Walters recently joined a conversation with Timothy Wirth, Chairman of the Energy Futures Coalition, President of the United Nations Foundation and former United States Senator from Colorado, on U.S. energy policy. Wirth was recently honored as a Champion of the Earth by the United Nations Environment Program and is well-known for his work in regard to children's health, the environment, women and population, peace, security and human rights.

Dear Senator Wirth:

Thank you for calling and discussing my perspective on energy policy particularly as it relates to the accelerated use of natural gas in electric generation.

1. Accepting Robert Hefner's long-held view and now the conventional wisdom that we have an abundant supply of clean burning natural gas, we should find ways to use this supply to supplant less-attractive fuels, such as coal used for electrical generation.

2. The utilities are the primary impediments. Unless forced by significant penalties and portfolio requirements, they will not move to utilize cleaner more efficient fuels and generation processes. Generally, the expertise of their mid-level management is not conducive to innovative or new approaches unless all other options are removed. The bureaucracy of most utilities rival that of government, where the politics of rocking the boat and the consequences of taking risks have effectively eliminated any voluntary motivation to be innovative or progressive.

3. Utilities have most often used the regional transmission systems to stifle competition, primarily by imposing unrealistic lead times on the approval of transmission contracts - effectively eliminating the ability of efficient merchant markets to get their product to the market.

4. A tragic example of this Soprano-like dominance is the Oneta Power Center, constructed outside of Tulsa. Oneta has 1100 MW of the most-efficient natural gas-fired combined-cycle technology and it is dispatched at only 15 percent. Built by Calpine for approximately $800M the plant is not worth $300M, given its current status as a stranded IPP.

The utilities, by restricting its ability to export power to willing customers through their monopolistic control of the South West Power Pool, have successfully bankrupted this facility. A sister plant similar to Oneta outside of OKC was similarly isolated and recently purchased for a deep discount by the local utility. And then only after losing a bruising battle to build a ridiculously expensive coal plant (Oklahoma has no coal reserves, but loads of natural gas). Meanwhile Oklahoma has approximately 50 percent of its capacity fueled by coal and 70 percent of its total generation fired by coal.

As Bill Clinton said at the Clean Air Conference, until we decouple generation from transmission from distribution, we will have these problems. Many countries have done this but in the U.S. the grip on public policy by non-progressive utilities has been impressive and effective.

Some other thoughts for corrective action:

1. Federal regulation could very quickly change the makeup of the boards of the South West Power Pool and other regional transmission systems that are currently run more like the Bada Bing Club than a public interest agency. These boards should have strong representation by independent power producers, independent transmission companies (very few of these) and smart non-utility folks who can change the policies previously tailored to favor utilities.

2. Federal regulation or extremely lucrative state incentives (from stimulus funding?) should require utilities to move to a true least-cost dispatch model. I say true because while many will claim to do so. it is least cost for their units - so it is OK to run a 14,000 BTU/kWh belching coal generation plant in Oklahoma and leave a 7,200 BTU/kWh natural gas combined cycle power plant shut in. Or it is least cost ignoring the true cost of fuel. With carbon and emissions cost rising a true least cost dispatch model, which even the most primitive of developing nations have (Ecuador's would be fine! Nicaragua's is more sophisticated than that used by most utilities).

3. Converting peaker natural gas plants to base load plants requires a wide commercialization of the newly revitalized Cheng technology in modifying gas turbines to achieve near combined cycle efficiencies in simple cycle and incentives to drive more of these peakers to combined cycle status. We (Hefner/Walters via GETGEN) hope soon to also be able to present and discuss a CCS technology that will economically make natural gas plants nearly as clean as solar and wind projects.

4. Mandated portfolio requirements will do wonders. California is a beehive of activity as the utilities face a stringent state mandate and penalties. The state is awash in biomass, biomass gasifiers, forest wastes, dairy wastes, solar and wind projects, to name a few.

I can get $110/MWH for renewable energy in California (portfolio requirements) and only $30 in my home state of Oklahoma (no portfolio requirements). Of course nothing is happening in Oklahoma on renewable energy. A state with massive wind resources has yet to break 1000 MW of wind capacity. It is clear that economic vitality and progress is not correlated to higher electricity charges (i.e. Oklahoma v. California). But this false claim that coal is cheaper or we cannot afford to pay an economic price for renewable is a common utility refrain.

5. There are exciting technologies that can economically remove all CO2 from flue gases of power facilities. There are equally exciting technologies that can vastly improve the simple cycle performance of a large number of current natural gas peakers (simple cycle turbines) so that their efficiency approaches that of combined cycle performance and therefore begins to cut into the dominance of coal for baseload power production. The DOE should encourage the use of stimulus funding to immediately fund dozens of demonstrations of these technologies and encourage the licensing of the technology to broaden its application.

I realize the above statements sound radical, but few people in this industry have the flexibility to speak about the utilities, as most are very dependent on them for their livelihood, political or charitable support. But this silence of those aware of what is going on and the (I believe overstated) influence of the utilities doesn't justify their ruthless domination, particularly in the South West Power Pool, of their competition. This should be the subject of a congressional investigation. After Wall Street, this is the next giant, overlooked and poorly regulated mess that is restraining and damaging our country.

Thank you Senator for asking for my thoughts and for continuing your great work in this arena.